Working Paper: CEPR ID: DP3113
Authors: Anne Sibert
Abstract: ?This Paper considers monetary policy when the weight policy makers put on outputloss relative to inflation is their private information. I show that in the first period of atwo-period term, all policy makers but the least inflation averse inflate less ? butrespond more to shocks ? than if there were no private information. Moderatelyinflation-averse policy makers may reduce their inflation most. A tendency towardincreased conservatism in their second period increases inflation in the first. The modelis extended to T-period terms, T < 8. It is shown that inflation depends solely on thepolicy maker?s time left in office and not how long he has served or what he hasalready done. With unchanging preferences and no discounting, inflation is lower thelonger he has left.
Keywords: Monetary Policy; Signalling
JEL Codes: E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| type of policymaker (D72) | inflation choice (E31) |
| public's expectations (D72) | inflation choice (E31) |
| private information (D82) | inflationary behavior (E31) |
| unknown preferences (D11) | inflationary behavior (E31) |
| policymakers' incentives to signal type (D72) | inflation choices (E31) |
| higher perceived inflation aversion (D11) | lower inflation expectations (E31) |
| becoming more conservative (E65) | lower inflation in future (E31) |
| becoming more conservative (E65) | higher inflation in present (E31) |